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  1. #1
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    Jun 2019
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    Default Single Member LLC - What Happens if I Were to Die

    My question involves business law in the state of: New York

    Hello - I've recently started my first LLC in New York City. The LLC will engage in the business of trading financial derivatives and will have starting capital of $100,000. The capital/trading account will be with TD Ameritrade (my broker). I'll be the sole member of the LLC (trading my money).

    My question is: If I end up passing away (I hope this doesn't happen of course!) will my wife have rights to terminate the LLC and withdraw any cash in the account (which I would want her to be able to)? My wife is neither a member nor a manager of the LLC (I've left her out of the LLC for compliance reasons as she works for an investment bank - although her employer has allowed me to engage in this business but prohibited me from trading equities). We don't have a pre-nup. Does her ability to have rights to the capital depend on LLC operating agreement? Or does it have more to do with TD Ameritrade? Or can I grant her permission in my will? Or does she have a claim no matter what? My apologies for my ignorance in all of this, my training is in finance.

    I should probably consult with an attorney but would like to get some opinions here before I do so.

    Much appreciated.

  2. #2
    Join Date
    Mar 2013
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    16,875

    Default Re: Single Member LLC - What Happens if I Were to Die

    Quote Quoting mister1982
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    I should probably consult with an attorney

    You should.

    Inheriting the LLC and inheriting the account are two different things.

    Check with Ameritrade. If the account is under the LLC name, see if the LLC can list her as the beneficiary. That takes care of the money. She would inherit the cash and any securities in the account and she can liquidate the securities or not. She can even move them and the money in an account with herself as owner and then do whatever she wants with it.

    As for the LLC, that's beyond my ken, so it's lawyer time.

    Why you needed an LLC for trading financial derivatives is beyond me.

  3. #3
    Join Date
    Oct 2006
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    15,281

    Default Re: Single Member LLC - What Happens if I Were to Die

    Quote Quoting mister1982
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    My question involves business law in the state of: New York

    Hello - I've recently started my first LLC in New York City. The LLC will engage in the business of trading financial derivatives and will have starting capital of $100,000. The capital/trading account will be with TD Ameritrade (my broker). I'll be the sole member of the LLC (trading my money).

    My question is: If I end up passing away (I hope this doesn't happen of course!) will my wife have rights to terminate the LLC and withdraw any cash in the account (which I would want her to be able to)? My wife is neither a member nor a manager of the LLC (I've left her out of the LLC for compliance reasons as she works for an investment bank - although her employer has allowed me to engage in this business but prohibited me from trading equities). We don't have a pre-nup. Does her ability to have rights to the capital depend on LLC operating agreement? Or does it have more to do with TD Ameritrade? Or can I grant her permission in my will? Or does she have a claim no matter what? My apologies for my ignorance in all of this, my training is in finance.

    I should probably consult with an attorney but would like to get some opinions here before I do so.

    Much appreciated.
    If she inherits your membership in the LLC she would be able to do whatever is needed.

  4. #4
    Join Date
    Jun 2019
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    3

    Default Re: Single Member LLC - What Happens if I Were to Die

    Thanks, adjusterjack. The trading account would be under the LLC. That was a requirement from my wife's employer and she would have to be left out. Also there's some anecdotal evidence corroborating that trading under an LLC increases probability the IRS will grant me trader tax status. I'll check whether I can list her as LLC beneficiary.

    Quote Quoting adjusterjack
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    You should.

    Inheriting the LLC and inheriting the account are two different things.

    Check with Ameritrade. If the account is under the LLC name, see if the LLC can list her as the beneficiary. That takes care of the money. She would inherit the cash and any securities in the account and she can liquidate the securities or not. She can even move them and the money in an account with herself as owner and then do whatever she wants with it.

    As for the LLC, that's beyond my ken, so it's lawyer time.

    Why you needed an LLC for trading financial derivatives is beyond me.
    Thanks, adjusterjack. The trading account would be under the LLC. That was a requirement from my wife's employer and she would have to be left out. Also there's some anecdotal evidence corroborating that trading under an LLC increases probability the IRS will grant me trader tax status. I'll check whether I can list her as LLC beneficiary.

    Quote Quoting llworking
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    If she inherits your membership in the LLC she would be able to do whatever is needed.
    Thanks, llworking. I'll check regarding inheritance.

  5. #5
    Join Date
    Oct 2014
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    Default Re: Single Member LLC - What Happens if I Were to Die

    Quote Quoting adjusterjack
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    If the account is under the LLC name, see if the LLC can list her as the beneficiary.
    You're not thinking that one through, Jack. If the account is owned by the LLC then it's pointless to have a beneficiary named because LLCs don't die. (They can terminate/dissolve, but they don't die.) More to the point, it wouldn't trigger anything on the OP's death because the OP doesn't own it the LLC does. Instead, the LLC member interests would pass to the OP's beneficiary, and whomever controls the LLC then controls the accounts that the LLC owns.

    Quote Quoting adjusterjack
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    As for the LLC, that's beyond my ken, so it's lawyer time.
    Treat the LLC like any other asset. In NY, probate can take awhile and get expensive. As a result, revocable living trusts are often used in that state to avoid probate. The member interests could be held by that trust. The terms of the trust would then spell out who gets the assets that are in the trust. There are other options, too, so seeing an estate planning lawyer is a good idea.

    Quote Quoting mister1982
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    Also there's some anecdotal evidence corroborating that trading under an LLC increases probability the IRS will grant me trader tax status.
    Having the account owned by a LLC won't make a difference. For federal income tax purposes a single member LLC is by default treated is disregarded as separate from its owner. In more plain English, for income tax purposes the LLC is ignored and you are treated as though you own the account directly. So the IRS will look at it just as it would if you owned the trading account directly in your name. The details of your trading activity is what will matter.

  6. #6
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    Mar 2013
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    Default Re: Single Member LLC - What Happens if I Were to Die

    Quote Quoting mister1982
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    The trading account would be under the LLC. That was a requirement from my wife's employer and she would have to be left out. Also there's some anecdotal evidence corroborating that trading under an LLC increases probability the IRS will grant me trader tax status.
    The trouble with "anecdotal" evidence is that it often results in laboring under misconceptions:

    1 - That an LLC increases the probability that you qualify for trader tax status (hereinafter TTS). It doesn't.
    2 - That the IRS grants you TTS. The IRS doesn't "grant" you anything. In other words you don't ask the IRS for TTS, you trade in the manner that qualifies you for TTS and you file your taxes on Schedule C at the end of the tax year in which you believe you have qualified.

    IRS Tax Topic number 429 explains that qualifying for TTS depends on what you do, not on the entity through which you do it. You can just as easily do it as an individual on Schedule C. An LLC is a disregarded entity for federal income tax purposes anyway.

    https://www.irs.gov/taxtopics/tc429

    Here, for your perusal, is that Section 475 of the US Tax Code referred to in the tax topic.

    https://codes.findlaw.com/us/title-2...-sect-475.html

    Page 67 of IRS Publication 550 Investment Income and Expenses explains the Special Rules for Traders in Securities and Commodities:

    https://www.irs.gov/pub/irs-pdf/p550.pdf

    Forbes published a comprehensive article (hardly anecdotal) that explains how to qualify for TTS and touches on appellate case decisions:

    https://www.forbes.com/sites/greatsp.../#3932b2363e35

    You should look up and read the case decisions for the nuances regarding TTS. You can probably find them on google scholar:

    https://scholar.google.com/scholar?hl=en&as_sdt=3

    Enter the names cited in the article one at a time and see what comes up.

    Quote Quoting Taxing Matters
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    Having the account owned by a LLC won't make a difference. For federal income tax purposes a single member LLC is by default treated is disregarded as separate from its owner. In more plain English, for income tax purposes the LLC is ignored and you are treated as though you own the account directly. So the IRS will look at it just as it would if you owned the trading account directly in your name. The details of your trading activity is what will matter.
    Well, I think I got that part right. I wrote it before seeing your post.


  7. #7
    Join Date
    Jul 2018
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    1,300

    Default Re: Single Member LLC - What Happens if I Were to Die

    Quote Quoting mister1982
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    If I end up passing away (I hope this doesn't happen of course!)
    You can hope all you like, but you will die.


    Quote Quoting mister1982
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    [When I die,] will my wife have rights to terminate the LLC and withdraw any cash in the account (which I would want her to be able to)?
    We have no way of knowing, but you certainly can set things up so that she has these abilities.


    Quote Quoting mister1982
    View Post
    My wife is neither a member nor a manager of the LLC (I've left her out of the LLC for compliance reasons as she works for an investment bank - although her employer has allowed me to engage in this business but prohibited me from trading equities). We don't have a pre-nup. Does her ability to have rights to the capital depend on LLC operating agreement? Or does it have more to do with TD Ameritrade?
    Subject to the terms of your will or trust, when you die, your wife likely will inherit your member interest in the LLC. Her ability to access assets of the LLC obviously depends on the terms of the LLC's operating agreement and agreements with third parties that hold the LLC's assets.


    Quote Quoting mister1982
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    I should probably consult with an attorney
    Yes, you should.


    Quote Quoting mister1982
    View Post
    but would like to get some opinions here before I do so.
    Opinions about what? And why are opinions from anonymous strangers on an internet message board, who may or may not be in your state and may or may not be lawyers, be something you want before contacting a local attorney.

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